Oldies but goodies
22 Apr 2019
You can’t drive, maintain or do restoration work on a vintage car because that is considered using the asset. But you could rent it to other people at market rates.
Investing in collectibles can be an enjoyable, and sometimes profitable, way to diversify your portfolio.
The Knight Frank Luxury Investment Index (KFLII) tracks the performance of 10 luxury
asset classes including wine, art, coloured diamonds, furniture, stamps, and coins. Latest data shows the index has grown nine per cent in the 12 months to the second quarter of 2018 and 103 per cent over 10 years.
But there can be setbacks too. While art grew by 25 per cent in the 12-month period, Chinese ceramics dropped by two per cent. Over 10 years, Chinese ceramics fell by four per cent and furniture by 32 per cent.
Even within the various luxury asset markets there can be significant variation. Take wine, for instance. The Knight Frank Fine Wine Icons Index, compiled by Wine Owners, saw annual growth of seven per cent. The figure reflects the growth of Burgundy vintages (14 per cent in the year to date) compared with Bordeaux first growths at less than three per cent overall. Over the three years, Burgundy has risen 85 per cent compared with 45 per cent for first growths.
A Sydney financial planner suggests if you are considering investing in collectibles, you should also weigh up the opportunity cost.
Can you get a better investment return elsewhere? Is the object so rare or valuable that its capital value will beat the long-term returns to be gained from shares or bonds, for instance?
Should I put my super in collectibles?
Some people chose to indulge their love of collectibles by allocating some of their superannuation savings towards investing in art, coins or cars.
But data on self-managed super funds’ (SMSF) asset allocation shows the proportion in collectibles and personal use assets has dropped in the past seven years.
In June 2011 $713 million, or 0.18 per cent of total assets, was invested in collectibles and personal use assets. By March 2018, this figure had fallen to $348 million, or 0.05 per cent of total assets.
This reflects new tax rules introduced in July 2011, governing how you must store and insure a collection if they are to be considered an asset of an SMSF.
Until July 2016, the rules only impacted collectibles purchased on or after July 1, 2011. Since then, all collectibles must comply with the rules, and that prompted many SMSF trustees to sell their collections because it was considered too expensive and restrictive to comply with the new rules.
The collectibles in an SMSF are not permitted to provide a “present day benefit” so they can’t be used by members of the SMSF or related parties such as family or business partners.
So you can’t drive, maintain or do restoration work on a vintage car because that is considered using the asset. But you could rent it to other people as long as you charge market rates.
You can’t display or store any collectibles in the private residence of the SMSF trustee or any related parties. Hanging an artwork in your home, or even storing it there, is a no-no if it’s an asset of your SMSF. You can store it (but not display it) on premises owned by related parties as long as it’s not their private residence.
Insurance is an additional cost. There are specialist insurers for art collections, for instance. But some artefacts can prove difficult to insure. Under the tax rules, collectibles purchased by an SMSF must be insured in the name of the SMSF fund within seven days of purchase. You cannot use your own personal home and contents insurance.
If you have any questions about investing in collectibles, it’s always best to get more personal advice from a financial planner.
®